Worldwide Tax News
India Authority for Advance Rulings Holds that Certain Services Considered FTS under China-India Treaty even if Not Rendered in the Other State
In a recent ruling, India's Authority for Advance Rulings (AAR) has held that the following services may be considered taxable fees for technical services (FTS) under the 1994 China-India income tax treaty even if not rendered in the other Contracting State:
- Identification and evaluation of products and suppliers;
- Generation of new products and ideas;
- Market research;
- Resolution of pricing issues;
- Safety/endurance tests;
- Review of quality systems; and
- Interaction with vendors
The position of the AAR is based on Article 12 of the China-India treaty, which defines FTS as any payment for the provision of services of a managerial, technical or consultancy nature by a resident of a Contracting State in the other Contracting State. Because the definition does not say "rendering" of services, a wider interpretation is adopted to include services that, although not rendered in the other State, are used in the other State. Furthermore, the services are considered highly specialized and technical in nature, and therefore meet the definition of consultancy services and should be taxable as FTS.
The U.S. IRS has recently published ten international practice units, including:
- Monetary Penalties for Failure to Timely File a Substantially Complete Form 5471 --Category 4 & 5 Filers
- Using an Authorization of Agent when a US Corporation is 25% Foreign Owned
- Using Alternative Means to Obtain Foreign Based Evidence
- Definition of Appropriate Exchange Rate Overview
- Sale by CFC to Unrelated Parties of Products Manufactured by Branch
- Identification of a U.S. Trade or Business of a Nonresident Alien
- Conducting Functional Analysis for Foreign Base Company Income (FBCI)
- Concepts of Foreign Base Company Services Income
- Branch Rules for Foreign Base Company Sales Income
- Branch Sales to Unrelated Parties of Products Manufactured by CFC
International practice units are developed by the Large Business and International Division of the IRS to provide staff with explanations of general international tax concepts as well as information about specific transaction types. They are not an official pronouncement of law, and cannot be used, cited or relied upon as such.
Click the following link for the International Practice Units page on the IRS website.
South Africa's 2015 Taxation Laws Amendment Bill and Tax Administration Laws Amendment Bill Introduced in the National Assembly
On 27 October 2015, South Africa's Minister of Finance Nhlanhla Nene introduced in the National Assembly the 2015 Taxation Laws Amendment Bill (TLAB) and the Tax Administration Laws Amendment Bill (TALAB).
Some of the main measures of the 2015 TLAB include:
- Relaxing capital gains tax rules applicable to the cross issue of shares and introducing counter measures for tax-free corporate migrations; and
- Withdrawing special foreign tax credits for service fees sourced in South Africa.
Some of the main measures of the 2015 TALAB include:
- Enabling the collection of information by South African financial institutions and an associated obligation on the financial institutions to register with SARS; and
- Clarifying qualifying persons for voluntary disclosure, relaxing the requirements for voluntary disclosure and broadening the ambit of voluntary disclosure relief.
Click the following link for previous coverage of the bills.
According to an update from the OECD, on 28 October 2015, Barbados signed the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. The convention as amended must now be ratified by Barbados and the ratification instrument deposited before entering into force in the country.
On 28 October 2015, officials from Barbados and Slovakia signed an income tax treaty. The treaty is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.
Additional details will be published once available.
On 26 October 2015, officials from Ethiopia and Switzerland agreed to the negotiation and signing of an income tax treaty. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.
On 29 October 2015, Treasury Deputy Assistant Secretary for International Tax Affairs Robert Stack gave testimony before the U.S. Senate Foreign Relations Committee on the need for the Senate to swiftly pass pending tax treaties and protocols.
The pending treaties include:
- The 2010 income and capital tax treaty with Chile, which is the first of its kind between Chile and the U.S.;
- The 2010 income tax treaty with Hungary, which will replace the 1979 treaty; and
- The 2013 income tax treaty with Poland, which will replace the 1974 treaty.
Then pending protocols include:
- The 2013 protocol to the 2003 income tax treaty with Japan;
- The 2009 protocol to the 1996 income and capital tax treaty with Luxembourg;
- The 2013 protocol to the 1990 income tax treaty with Spain;
- The 2009 protocol to the 1996 income tax treaty with Switzerland, and
- The 2010 protocol amending the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters.
Click the following link for the full text of Mr. Stack's testimony.